DISCLAIMER No liability is assumed by Staples Rodway for any losses suffered by
any person relying directly or indirectly upon any article within this document. It is
2
â&#x20AC;¢ NUMBERS
2017
recommended
thatWinter
you consult
your advisor before acting on this information.

No 42 WINTER 2017

2016
Network of
the Year
BAKER TILLY
INTERNATIONAL

IN THIS ISSUE
2 Online accommodation
The taxman is waiting at your door

16 Succeeding in the booming building industry
Are you becoming a victim of your own success?

18 Property investment
Listed property Trusts vs property syndicates

20
NOW Communications
Business growth and getting the basics right

22 Ask an Expert
24 Are you ready for how you
account for revenue?
Changes to NZ IFRS 15 Revenue from Contracts with Customers

27 A hot topic
Planning a robust IT infrastructure

28
A J M (John) Wadams
30 Movers & shakers
31 Staples Rodway snapshot

14 OCTOBER 2017
32KM RUN OR WALK
Individual or Relay Team of Three
Entries open 1 July at
staplesrodwaychallenge.nz

ONLINE ACCOMMODATION

THE TAXMAN IS
WAITING AT THE DOOR

2 â&#x20AC;¢ NUMBERS Winter 2017

A love of technology and housing have intersected; New Zealanders are using the
likes of Airbnb and Bookabach to turn spare rooms, holiday homes and other spaces
into extra cash. These online platforms make it easy to find and deal with short-stay
tenants. The use of these platforms can, however, result in nasty GST surprises.
GOODS & SERVICES TAX

INCOME TAX

Properties used to provide short-term accommodation can
potentially become part of the GST system with one of the key
consequences being that future capital gains on a property
may become subject to GST.

Under New Zealand law, rental income sourced in New
Zealand is subject to income tax, regardless of the tax residency of the taxpayer. Rental income, both short and long
term, is sourced in New Zealand if the property is located in
New Zealand.
Expenses incurred in deriving rental income are deductible for tax purposes. However, if the property is used for both
rental and private use, the available deductions can be subject
to apportionment under the “mixed use asset” rules. Private
use includes the use of the property by an associated person
such as a family member, even if they pay for it. If expenses
are subject to the mixed use asset rules this means a proportion of expenses such as rates, insurance, interest and management fees are non-deductible. This mixed use asset rule
applies to most investment vehicles, including partnerships,
look-through companies and trusts.
Taxpayers who have a tax liability (referred to as Residual
Income Tax) of $2,500 or more in the prior year will have a
provisional tax liability for the current period. In some cases
interest (currently at 8.22%) and penalties apply if income tax
is unpaid by the tax instalment due dates.
Technology is a double-edged sword. Data relating to
short-stay rentals is readily available to Inland Revenue. It
pays to ensure those activities are managed professionally in
all respects including tax.

GST registration
The supply of short-term accommodation is generally
treated as a taxable supply for GST purposes. Registration
for GST is compulsory where the gross value of taxable supplies exceeds $60,000 in any 12 month period. People with
a sought after property or a number of properties appear to
be regularly crossing this threshold, without appreciating the
implication. Specifically, that 3/23rds of the rental income
could be claimed by the tax man whether or not the tenants
have paid GST on the accommodation.
Once registered, GST must be accounted for on all taxable
supplies. However, GST can be claimed (in whole or in part) on
costs associated with the supply of short-term accommodation.
Second hand goods claim
Once in the GST net, a taxpayer can generally recoup (either
immediately or over time) the GST implicit in the purchase
price of the property. The GST rules provide a specific mechanism for calculating how much GST can be recouped immediately or in each return.
Ownership structure and GST
Where properties are held in investment vehicles such as
companies and trusts and are used for both short term
accommodation and private use, there may be requirements to charge a deemed market rental for the private use,
with GST on the deemed private rental being paid to Inland
Revenue. Restrictions on the ability to recover GST apply to
properties owned by individuals that are used for both private
and business purposes.
Accounting for GST on the property on sale
Where the provider of short-term accommodation is registered for GST (or required to be registered for GST), GST consequences will arise on the eventual sale of the property or
on GST deregistration. Depending on the facts, the provider of
that accommodation is required to account to Inland Revenue
for some or all of the sale proceeds from the property. As
noted, this can result in GST being paid on amounts including
the value of capital gains.
www.staplesrodway.co.nz

If you require any assistance or additional information, please
contact your local Staples Rodway tax advisor.

TH MAY 2017 MARKED THE day that New Zealanders collectively paid off their tax bill for the year and could keep
the rest of their income for themselves in what has been
coined Tax Freedom Day.
Each year Staples Rodway calculates when Tax Freedom
Day will fall by analysing GDP, tax revenue and current tax
brackets, which determine the rate of tax people pay on their
income. The measure used is the same methodology that is
used internationally, so it is helpful to compare ourselves with
other countries and how the date moves year to year. One way
of describing Tax Freedom Day is, if the nation as whole had
to pay tax (of all kinds) out of the national income (GDP) first,
before it could keep any of that money for itself, it would take
until 8 May before the national tax bill had been paid.
This year Tax Freedom Day fell six days later than last year,
meaning people are paying more tax than they did in 2016
both in total and as a proportion of overall income. The total
amount Kiwis paid in taxes has increased by 9.5 percent yearon-year, more than double the increase of last year, alongside
a 5.1 percent increase in nominal GDP.

By the end of February this year, corporate tax collected was
already 25 percent higher than in the year to March 2016. In
the absence of any major tax changes in the last year, this can
only be a sign of a well performing New Zealand economy, in
spite of uncertainty on the global horizon.
‘Bracket creep’ also had an impact as a result of inflation
pushing wages and salaries into higher tax brackets, leading
to an effective overall increase in tax rates for most workers
without the tax rates themselves increasing.

THE EFFECTS OF BRACKET CREEP
THE OVERALL
TAX RATE ON THE
AVERAGE NATIONAL
WAGE HAS
INCREASED 18.5%

IF MARGINAL TAX BRACKETS
HAD MOVED IN LINE WITH
WAGE GROWTH, THE
AVERAGE WAGE EARNER
WOULD HAVE AN EXTRA

$1,700

PER YEAR
OR THE EQUIVALENT OF

ES
X
A

OR

TOTAL
TAX BILL

34.8%

ME YOU KEEP

31.2%

65.2%

LOCAL
GOVERNMENT

3.6%
The higher tax bill is reflective of a number of factors but
the highest increases were in company tax and personal tax,
with the GST take increasing to a lesser extent.
Our methodology shows the true impact of the government on your back pocket each year. Most of the growth in
government tax revenue has come from the corporate sector.
www.staplesrodway.co.nz

WEEKLY SUNDAY
BRUNCH FOR 2 OF
SMASHED AVOCADO
ON TOAST

CO

CENTRAL
GOVERNMENT

IN

INCOME YOU PA
YI

N

T

A DAILY
FLAT WHITE

In this year’s Budget announcement on May 25 there was
finally some relief provided to individual taxpayers, including adjusting tax brackets, partly offsetting inflation over the
past nine years since the last adjustment. While this has given
the average New Zealand wage earner $1,060 back in their
pocket, the removal of the independent earner credit for those
earning between $24,000 and $48,000 means that someone
on $30,000 is only a net 77c a week better off.
There are calls for the government to ensure that tax
brackets are adjusted for inflation on a continual basis, but
there was no indication this suggestion would be taken up.
Australians have higher marginal tax rates and a higher
corporate tax rate, although the combination of lower GST
(10 percent) and a nil tax threshold for low income, means
that the tax burden is lower than that of the New Zealand
taxpayer. Australia’s Tax Freedom Day fell on April 13 this
year. In the US tax freedom day was April 23. In the UK it falls
in early June, and in other highly-taxed European countries
it falls even later.
NUMBERS Winter 2017 • 5

WELCOME
CHANGES
FROM THE IRD
New Zealand was rated as the easiest country for doing business by the World Bank in
October 2016, edging out Singapore for the number one spot. Maintaining
this position is likely to be helped by recent long overdue (and welcome)
changes made by the IRD to reduce the complexity that has crept
into the tax rules for small to medium businesses over time.

RESTRICTION OF
TAINTED CAPITAL GAINS
TO LIMITED CASES
A tainted capital gain arises when a
company sells an asset held on capital
account to an associate. Capital gains
can usually be passed out tax free on
liquidation, but not if the sale was to an
associate. The old version of this provision was there to prevent companies
from creating artificial capital gains
by inflating the value of assets transferred to associates, enabling cash to
be distributed tax free in substitution for
taxable income. The ambit of the rule
was very wide, to the extent that almost
all capital gains on sales to associates
were captured. These rules made it difficult to restructure SME asset ownership
without either unavoidably or inadvertently creating a future tax headache.
With these recent changes the
scope is now much narrower, only targeting those gains made when the
asset sold is retained in substantially
the same group at the time of liquidation. If at least 15% of the shares in the
company which purchased the asset
are held by a third party when the assetselling company is liquidated, then the
tainted capital gain rule does not apply.
That is, if the 15% threshold is met, the
company which sold the asset and
derived a capital gain can be liquidated
and distribute the capital gain tax free
to its shareholders. The thinking is that
having 15% third party shareholders in
the purchasing company will prevent
transactions happening at greater than
market value, and therefore inflating
“capital gains”. In my view that is sound
thinking. A further helpful change is
that, where sales of the asset are to
non-corporate associates the tainted
capital gain rule does not apply.
These changes will undoubtedly
free up corporate structuring in the
SME environment.
www.staplesrodway.co.nz

PROVISIONAL TAX
BEING MADE FAIRER

The good news is that use of money
interest won’t be charged on the first
and second instalment of provisional
tax, provided that the standard uplift
method has been used. The standard
uplift method is the one where you
pay tax based on an uplift on your prior
year income, on the assumption that
your profits are always going up. If your
profits go up more than last year, but
you paid tax based on the uplift, then
no use of money interest will arise on
the first and second instalment of provisional tax. Use of money interest will
still arise on the third instalment, on the
basis that this is due on 7 May following
the year end, so most taxpayers should
know what their taxable income is by
then, and be able to pay the “correct”
amount of tax by that date.
Our system is peculiar in the sense
that taxpayers are charged interest on
their unpaid tax when they are not in a
position to know how much that tax will
be. I always find this the hardest thing
to explain to clients. The usual answer
“it is just how our system works” just
doesn’t cut it. With this change this
explanation will be needed less frequently in the future.

IRD CHANGES ITS MIND ON
STRANGE “BRIGHT-LINE
RULE” INTERPRETATION
You may have seen Staples Rodway
in the media talking about changes
to the Bright-line rules, which generally impose tax on the sale of residential land within two years. There
is an exemption for your main home.
However, an interpretation of the law
resulted in a potential tax liability where
you signed up for a house and land
package, and then later nominated
your trust to complete the purchase.
The interpretation said that if there
was a change in the value of your land
from when you signed the contract, to
when you nominated your trust, the gain
would be taxable. The IRD have backed
away from that interpretation, and have
come to a very sensible conclusion.
Broadly speaking, if you nominate your
trust you won’t be paying tax on the gain
from the date you first signed to the date
you nominate your trust. However, if you
are passing the property onto someone
else prior to settlement, and instead of
selling them the property, all you do is
nominate them to complete the purchase and they pay you a nomination fee,
then that nomination fee will be taxable.
That outcome seems fair to us, and is a
welcome change to IRD’s interpretation.
These changes are very welcome and
we believe result in fairer rules in play.

Some positive tax changes have been
enacted which we think will certainly
help our clients deal with the ever
increasing complexity of the tax system.

8 • NUMBERS Winter 2017

TIME FOR A NEW CAR?
We all know that cars and companies don’t mix – if you operate via a
company and that company provides a vehicle to an employee (that
includes you as a shareholder employee) Fringe Benefit Tax (FBT) is
payable. On a typical $50,000 sedan car the rate at which FBT is levied is
20% of the GST inclusive value. FBT is usually calculated at 49.25% of that.
Thus FBT comes out at something like $5,000 per annum. Sure you also
get a tax deduction for the FBT you pay and that reduces your cash cost
by 28%, but then there’s the GST to pay on the "supply" to the shareholder
employee. So overall, it still costs you somewhere around that $5,000
mark in FBT to have a $50,000 car in a company. Push the value of the
car over the $100,000 mark and the FBT costs certainly get ugly. For this
reason we’ve normally kept higher priced vehicles out of companies.
If you contrast this with someone who operates exactly the same
business as you but as a sole trader or partnership, FBT doesn’t apply.
However, you are exposed to unlimited personal liability if you operate on
your own or in a partnership, so there is a trade-off.
From 1 April this year IRD has decided that if you operate via a company
then, as long as the company shares are owned by natural persons (no
trust, for instance) and there are 5 or fewer shareholders, the company
can purchase up to 2 vehicles and no FBT is payable. Companies with 5
or fewer natural person shareholders (Close Companies) are now treated
much like sole traders and partnerships for FBT purposes when it comes
to vehicle ownership.
The upshot is that after you’ve determined the percentage of business
use the company will use the car for, you claim that portion of the GST
on acquisition, and that portion of the various running costs, including
depreciation. And that’s it. If that business percentage changes from year
to year, you adjust the GST claim every balance date, and alter what percentage of business expenses you claim the following year. Your Staples
Rodway tax adviser will be all over this, so make contact if you think there
might be some opportunities for you to put your existing vehicle into your
company or, who knows, you might want to treat yourself to a new car.

HOW MUCH IS YOUR HOUSE WORTH?
The Commissioner has issued a statement to help us work out the taxable
value where an employer providers accommodation to an employee.
As ever, the basic tenet is that the value of accommodation needs to
be a market rate as if the employer was providing the accommodation
to an arms-length tenant. So, nothing new here. We need to take into
consideration location, access to amenities, building value, number of
bedrooms, size, parking, condition, and anything that inhibits the tenant
from full use. However we cannot take into consideration factors like the
employee having to live in and on the employer’s property and thereby
be available 24/7. IRD’s view is that those factors are personal to the
employee and do not affect the market value of the rent. I’ve always
wondered what value IRD attributes to the rented house attached to the
local Police Station in which the poor copper and their family are forced
to live among the graffiti, the ever-present threats to safety, and general
abuse! I could go on – so I will.
Where a property’s rental cannot be determined with any accuracy
(perhaps because it is a farm and it would never be rented to the general
public) you need to use the rate that others are using in your area for
general public rental. The Commissioner also states that if you provide a
number of houses to your employees (farmers do this all the time), you
cannot average the rental and attribute that amount to all employees.
The market rent for each property must be determined separately.
In future, employers who provide employees with accommodation
are going to come under intense scrutiny. This is the point of these new
rules. Employers will no longer be able to just roughly estimate the value
of the accommodation they provide to employees. Farmers for instance
are going to have to get market rental valuations, ask a real estate agent,
do some research of comparable properties, go to Trade Me etc. to work
out the value of the rent, and document it! Needless to say, any contribution by the employee comes off the taxable value of the accommodation.
There has been no change to how free or subsidised accommodation is taxed. It is still considered to be employee remuneration and it is
subject to PAYE. This means the employer "grosses" up the value of the
accommodation by the employee's effective tax rate and pays PAYE to
IRD on a monthly basis in the normal way. Remember because employer
subsidised accommodation is dealt with under the PAYE rules, it is
added into an employee’s taxable income. This means it could push the
employee into a higher tax bracket, and it forms part of the child support,
student loan and Working for Families calculation. FBT is not payable on
employee accommodation even though it is a non-cash benefit and feels
like a fringe benefit.

www.staplesrodway.co.nz

LABOUR PAINS
We have recently become aware of a potential
problem where a contractor provides an invoice for
working to say 31st March, and that invoice is not
paid until 20th April when withholding tax (WHT) is
deducted by a labour hire firm. That WHT will be
reported on the labour hire firm’s April EMS form.
The question arises as to whether the contractor
accrues income into the March period or operates
on a cash basis so their earnings match to their
earnings summary. If they accrue their income they
cannot request a transfer of the WHT in the April
period back to the March accrual period on their
own account. This means we are going to have the
same mismatch we currently have with interest
and RWT. In other words, we will have tax to pay in
the current year because the tax credit from April
cannot be dragged back to March, and the following year we will receive a refund as we will have
paid too much tax.
If “the contractor” is a sole trader with no staff
and little capital equipment, we should be able to
apply the principle established in FCT v Firstenburg
(1977) 6 ATR 297 and FCT v Dunn (1989) 89 ATC
4,141 whereby the contractor accounts for income
on a cash basis. In those decisions it was held that
for professional taxpayers who earn income as a
direct result of their personal exertions and do not
have high levels of stock or accounts receivable,
and do not use employees or assets in a significant
way to generate their income, they could prepare
accounts on a cash basis. In this case, their earnings for tax purposes would match their IRD earnings summary. However, if the contractor was a
company, the normal rules will apply and you are
going to have to accrue the income to balance
date. And because you cannot accrue the tax
credit, you will have tax to pay this year, and overpay tax next year. A less than ideal result.
NUMBERS Winter 2017 • 9

TAXING
CHALLENGES
AROUND
CASH FLOW
Keeping on top of tax payments can be
challenging for some businesses. We
look at examples of temporary issues
that many businesses encounter and
explore ways to overcome them.

APIDLY GROWING BUSINESSES USUALLY REQUIRE greater
working capital to meet the demands of increased payments
to suppliers, wages, taxation and capital expenditure. If additional
working capital facilities have not been put in place, we often find
that IRD payments are, dangerously, given a lesser priority with
business owners focussing instead on maintaining the supply of
products or services and paying wages.
Similarly, the cash flow for underperforming businesses usually
reflects insufficient revenue generated to meet costs. Those business owners who havenâ&#x20AC;&#x2122;t scaled back production and overheads
to match reduced demand are likely to face hard decisions around
prioritising payments.

In situations where cash flow has not kept up with tax obligations, it is best to contact your advisor and discuss notifying
the IRD before a tax payment is missed. Keep in mind that tax
returns still need to be filed as they fall due, even if making
payment by the due date is unlikely. By contacting the IRD
before the due date and continuing to file on time, the taxpayer
may be eligible for reduced penalties, and will be in a good
position to work with the IRD to get payments back up to date.
It is important to be aware that the IRD ranks as a preferential creditor regarding any overdue PAYE or GST. Any
related penalties or interest, and any overdue income tax is
not preferential. Like any unpaid creditor, the IRD could force
a business into liquidation if debts remain unpaid. PAYE has a
special status as this tax type is held on trust and is viewed as
collected by the taxpayer on behalf of the IRD. Hence deliberately unpaid PAYE is the only tax where jail time can be
imposed if not paid.

CASH FLOW FORECASTING
If you are behind with your tax payments, we strongly suggest
that your first step is to create a robust cash flow forecast, ideally
covering the next 12 months. This should enable you to assess
whether the financial position is likely to improve, or whether
you need to take further action to address the problem.
There are a number of forecasting and budgeting tools
that can help. Spotlight Forecasting and Modano are two
examples of software that we use when helping clients in this
area. The key is to produce an integrated forecast cash flow,
balance sheet and profit and loss account. By preparing 3-way
financial statements, you are less likely to miss important
items. The output should help you decide whether you are
likely to need to organise further funding, or scale back operations to address the lack of cash. It also provides a monthly
plan for the repayment of any outstanding principal amounts.
In meeting the costs of forecasting, it’s worth noting that
if you have less than 50 employees, you may be eligible for
NZTE Capability Development Vouchers, to use as partial
payment towards the cost of training for business planning
and managing resources. The co-funding is up to 50% of
capability development training, up to a maximum of $5,000
per year per business.
Once you have assessed the bigger picture, review
whether the forecast cash flow issues appear to be temporary or permanent. If the latter, we suggest talking to business
recovery experts to determine what options are available to
you, such as restructuring, refinancing, a creditor compromise,
receivership or liquidation.

FUNDING CASH FLOW DEFICITS
For temporary cash flow deficits, consider negotiating a bank
overdraft. The financial forecasts that you have prepared
should help to support your application, and show how the
overdraft will be repaid over time.
Other measures which can provide temporary relief
include using tax financing for income tax payments and
negotiating payment plans with the IRD for historic GST and
income tax. In most circumstances, the IRD would expect
PAYE to be paid up to date and for the payment of current
taxes to be made on time.
www.staplesrodway.co.nz

TAX FINANCING
There are several companies offering tax financing services,
acting as tax intermediaries between businesses and the
IRD. Your advisor can obtain quotes and organise the tax
financing for you.
Tax financing can be helpful for businesses undergoing
change, to assist with upcoming payments which the taxpayer
is unable to meet. When tax financing is undertaken, the tax
intermediary sets aside an agreed amount in a ‘tax pool’, as
at the date of the arrangement. The business pays interest
on this amount until cash flows enable full payment, at which
point the backdated principal amount (held at the date on
which the financing plan was initiated) is transferred to the IRD.
This clears any use of money interest and penalties imposed
by the IRD, so the only cost to the business is the tax financing
rate. There is no security taken by tax financing intermediaries.
The IRD use of money interest rate is currently 8.22% on
underpayments. Compared to this, the indicative tax financing
rate is from 4.4% at the time of writing. In contrast to other borrowing rates, such as a business overdraft, the tax financing rate
offers a highly competitive way of smoothing out tax cash flows.
Use of money interest is still charged on overdue tax
amounts under an arrangement plan. Therefore, given the
above interest rates, while a payment plan is beneficial for taxpayers with historical tax liabilities, it would be more beneficial
for a taxpayer unable to meet upcoming payments to negotiate tax financing with an intermediary.

PAYMENT ARRANGEMENTS WITH THE IRD
It is possible to request payment plans for overdue GST
and income tax payments, and the main option available is
an instalment arrangement, whereby an agreed amount is
repaid over a set period of time. To initiate this, the taxpayer
needs to provide the IRD with an instalment arrangement
proposal. The aim of this proposal should be to pay off the
outstanding tax in the shortest possible time, while keeping
current tax obligations up to date (particularly those relating
to PAYE and GST).
An agreed arrangement plan needs to be adhered to in
order to avoid reputational issue with the IRD and increased
penalties. This is where a robust cash flow forecast and forecast financial statements could assist in ensuring the arrangement plan is realistic given the taxpayer’s cash flows.
Do be aware that, as discussed above, use of money interest is still charged during an arrangement period. The benefits
of a payment plan arise from reduced penalties and avoiding
any further debt collection action from the IRD. We suggest
working with your advisor on negotiating with the IRD, as it
may provide more confidence in your ability to deliver.
The most valuable advice that we can give is to act
promptly when cash flow issues start to arise. If you can
quickly assess whether the issues are temporary or look to be
longer term, and take action accordingly, you should be in a
much better position to ensure a good outcome for you and
your stakeholders.
Talk to your usual advisors or contact Tracy Hickman in our
Corporate Advisory Team for guidance. You can reach Tracy on
09 373 1133 or via email at tracy.hickman@staplesrodway.com.
NUMBERS Winter 2017 • 11

YOUR FAMILY FARM

WILL IT SUCCEED TO
THE NEXT GENERATION?
In New Zealand many dairy farms are currently owned and operated as family businesses,
handed down through the generations, but with volatile payouts and ever increasing land
values, will this be the case in the future? Will there still be the opportunity for future
generations to succeed in the farming business? Or are children going to seek an alternative
career in something a little less unpredictable, leaving no option but to sell?

NE OF THE MAIN REASONS for this potential change
is that the value and size of farms is increasing. This
makes it difficult for family members to purchase the farm
and have a sustainable business going forward.
If you want to keep your farming business in the family,
then you need to have a plan in place to make this happen.
To succeed, succession planning for farmers is now
more crucial than ever. This involves setting things up for
future generations so that everyone is happy and it’s fair
for all family members. However, fair does not mean equal.
The contribution of the people working on the farm needs
to be taken into account when determining what is fair.
Too often the issue of succession planning is put in
the “too hard basket” and steps are not put in place for
family members working on the farm to succeed into
farm ownership. The farm is sold, and this causes tension
and conflict between family members. Promises made by
parents have no meaning unless they are documented
correctly, which requires the help of professionals including lawyers and accountants.

Staples Rodway Associate Leigh Buchanan and her
husband George own an 84ha farm near Inglewood in
Taranaki and milk 265 Friesian cross cows. Their son Rob
has come home on the farm this year and is nearing the
end of his first season contract milking.
George and Leigh have two children, Rob and Sarah.
Rob has a Bachelor of Commerce majoring in Agriculture
from Lincoln University. He also worked for PGG Wrightson
as a Technical Field Rep based in Darfield for 5 years. In
this role he worked with dairy, drystock, cropping and
seed farmers. He has seen a broad range of farming and is
applying some of this knowledge in his role on the family
farm. Sarah is a pharmacist, who works in Stratford.
Discussions have been held with all the family regarding
keeping the farming business in the family and steps have
been put in place to achieve this end result. All members of
the family have been included in the family succession plan.
This means that everyone is on the same page and there
are no surprises for the non farming members of the family.

KEY STEPS TO FUTURE PROOFING YOUR FARM
1. Consider what end result you want to achieve, and then
put the steps in place to make this happen. Begin with
the end in mind.
2. Hold open and honest discussions with the family regarding goals and steps to be taken to achieve these goals.
3. Take into consideration the contribution of the people
working on the farm when creating the succession plan.
4. Document your plans correctly and take them to a
lawyer and accountant to review.
If you wish to keep your farming business in the family
for future generations, start planning. Doing nothing isn’t
an option and is likely to ultimately cause conflict and disharmony between family members.
What is the legacy that you wish to leave for your family?
Decide this and put the steps in place to make it happen.
Please contact your usual Staples Rodway advisor if you
would like help planning for future generations.

RACHAEL CARTER
SOHO WINES

SOHO Wines’ Havana Pinot Noir 2015
was recently awarded a Gold Medal,
the Trophy for Best Marlborough Pinot
Noir, and the Trophy for Best New
Zealand Pinot Noir at the International
Wine Challenge – one of the world’s
most prestigious wine competitions.
We caught up with Rachael Carter,
founder and Managing Director, to
hear about her journey to success.
Interview by Jo-Anne Randall
& Jessica Stewart
STAPLES RODWAY
WOMEN IN BUSINESS
www.staplesrodway.co.nz/wib

Q: Can you tell us more about how you got involved with
making wine?
A: My father owned a company that produced everything a
winemaker needs to make and package wine, such as corks,
barrels, and caps. I left my marketing studies early to help him
out when a competitor started up, and have been involved in
the industry ever since. In 2000 my father sold his company
and reinvested in vineyards, including one on Waiheke and
two in Marlborough. Around this time screw caps for wine
bottles were just becoming popular. I decided to start importing screw caps from Italy and gained a 75% market share in 3
years. Eventually, with the support of my family, I decided to
manufacture screw caps in Auckland and entered into a partnership with the Italians I had been importing them from,
which grew our market share to 97%.
In 2008, the Waiheke vineyard my father had
invested in was struggling, and the winery couldn’t
afford to buy his grapes. I had always wanted my own
wine company, so I sold our share in the screw cap
company and started SOHO Wines to take my father’s
grapes. It’s all grown from there!
Q: Your business model has been referred to as a virtual
winery. How did you come up with this concept?
A: I think it is better to invest in good quality fruit
rather than a winery, and investing in a winery is
expensive! Our winemakers either use their own
existing wineries to make our wine, or use a contract winery. We source our fruit from three of the
best New Zealand wine regions, which means
each wine has its own distinctive premium
style and regional personality. Combined with
the best fruit, I have handpicked three winemakers, who in my opinion are the best winemakers in New Zealand - they are specialists
in their realm.
Our Marlborough winemaker is Dave
Clouston, our Central Otago winemaker is Grant
Taylor, and our Waiheke Island winemaker is
James Rowan.
Q: Is there anything you wish you had known
before you started out?
A: It has been quite a roller coaster ride, I wish I had planned
things better. There are also lots of things I wish I had known
before I started, instead of learning the hard way. For example, I
have learnt that it is a good idea to get trade insurance on large
clients you deal with. It is not uncommon to have a large order
cancelled at the last minute in this industry. However, this does
open you up to finding other markets and channels for your
brand - things happen for a reason!
Q: What has been your career highlight to date?
A: Our recent success with the Havana Pinot Noir 2015 at the
International Wine Challenge is fantastic, it will open up a lot
of doors. We’ve had a lot of calls for orders and are already
www.staplesrodway.co.nz

having to allocate stock so we don’t run out too quickly. The
icing on the cake is that the grapes were sourced from my
father’s vineyard.
My daughter, Maren, is the highlight ahead of any career
though, she is the best thing that’s ever happened to me!
Q: Your wines are uniquely named, how do you choose
these names?
A: I actually come up with the names first - I have an idea of
the style of wine that I want our winemakers to produce, and
the name captures this. For example, the Havana Pinot Noir is
inspired by a city with infectious energy. The wine reflects this
with a core of spicy black cherry and sweet dark chocolate,
a hint of oak, and a subtle smokiness. The back label on
each bottle describes who or what the wine is inspired
by, it’s a real point of difference for us in a crowded
market. When I came up with this concept, I also
wanted to reflect the people drinking the wine - SOHO
Wines is a totally unique name in itself because it’s not
reflective of mountains, hills or rocks like many other
wine brands are. For me, wine reflects our life and the
amazing people we share it with.
Q: What have your experiences as a woman in business been like?
A: It’s been pretty good, aside from my time managing the screw cap plant! My business partners
were all Italian men. When we first started out I
had to email them from my dad’s account to get
a response, because they would ignore anything I sent as myself. They were very surprised
when they came out to New Zealand and
realised it was me who had been instructing
them on how to make good quality screw caps!
Q: What sacrifices have you had to make along
the way?
A: My social life! When I was running the screw
cap plant I would work long hours, but party
quite hard as I didn’t have a child. Now, I try my
best not to sacrifice time with my daughter - I
think I balance it okay, and I would rather be at
home with her than go out. I have been very busy
lately, but I find that as you go through stages, it will change.
Q: Do you have any advice for aspiring business women?
A: Believe in your passion and don’t lose faith when you face
adversity, but don’t let it rule your world either! Enable yourself to have some down time - this is one thing I haven’t done
well and have learned from.
I think the difference between people who are doing okay
and those who are really successful comes down to meeting
commitments and being responsive. Successful people don’t
miss opportunities because they always get back to you when
they say they will - it’s a mark of respect and integrity. It seems
so basic, but it astounds me how many people don’t do this!
NUMBERS Winter 2017 • 15

In the wake of Fletcher Building’s proﬁt downgrade announcement, there has been a lot of talk about
the building industry’s ability to cope with the demands of the current construction peak. It can be said
that some companies are over-trading and run the risk of becoming victims of their own success.

A

S ONE OF NEW ZEALAND’S largest suppliers of professional financial services to businesses in the construction
industry, Staples Rodway is in a unique position to understand
how to manage the potential pitfalls of a construction boom.
Our experience working with a leading Waikato residential
home builder provides some reassurance that it is possible
to remain on track and beneﬁt from the booming construction industry.

PEOPLE AT THE CENTRE
The owners of our client’s business are its key to success.
They value establishing long term relationships with suppliers,
employees and customers. Their culture is inclusive and teamoriented, with the customer at the centre of everything they do.
This customer-centric model includes providing exceptional value, creating a risk-free build experience and making
the process as simple as possible.

FOCUS ON RISK MINIMISATION
There are risks of over-extending and entering a greater
number or larger scale of projects than a business can sustain.
Problems can arise from misunderstanding cash flow cycles,
or not being able to up-scale activities quickly enough
because of the supply constraints on the industry. The risks
are signiﬁcant, whether they apply to your own business or to
your customers and suppliers.

WAYS TO MINIMISE RISK
Key ways to address these concerns and minimise risk include:

understanding construction contract legislation and
knowing when and how to enforce your rights
 stopping work when you are not getting paid
 getting variations approved in writing

having an independent business advisor prepare
cash-ﬂow projections
 engaging a quantity surveyor and accountant to price jobs

obtaining retentions advice and exploring alternative
options, for example milestone payments
 taking personal guarantees from customers where possible
 registering on the Personal Property Securities Register
(PPSR)
 obtaining insolvent transaction advice
 obtaining terms of trade advice

allowing for plenty of margin when providing quotes,
bearing in mind that construction inﬂation is currently
running at 9–10%

allowing more time to complete projects and avoiding
signing up to harsh liquidated damages clauses
 walking away from accepting projects that don’t stack up
in respect of both margin and time
www.staplesrodway.co.nz

Our client recognised the importance of managing risk
and follows these steps wherever possible. Every job goes
through an estimator, terms of trade are well documented,
every variation is approved in writing and every job has a
budget and projected margin.

GET EXPERTS TO OVERSEE FINANCES
Behind the scenes we worked with them reviewing:
 gross revenue on a segmented basis
 contract throughput
 customer deposit traffic
 slab-down rates
 work in progress
 gross profit margin
 budget-to-actual variance analysis by project
 land acquisition and settlement cycles
 cash flow projections and debtor cycles
 tax opportunities
 optimal business ownership structure
We recommend all businesses in the building trade find
experienced advisors who can provide a similar oversight.

WHAT DOES THIS MEAN FOR ME?
Success in the building industry isn’t guaranteed, despite the
current excess demand within the construction sector. More
than ever it requires a disciplined approach across all aspects
of a business.
If you are in the building sector and experiencing the current
pressures of a booming industry, ask yourself these questions:
 Am I attracting and retaining the best people?
 Does my customers’ experience make them want to refer
me to others?
 Have I structured my business in a way that best mitigates
downside risk?
 Are my internal controls and processes adequate and are
they constantly adapting to change?
 Can I be sure that my quotes, costs and billing line up?
 Do I truly understand the key drivers of profitability in my
business?
 Am I performing budget-to-actual variance analysis and
do I understand the reasons for project margin variances?
 Is my business able to identify and realise growth opportunities – now or in the future?
 Do I have my finger on the pulse – am I in control of my
business?
If you cannot answer yes to these questions it may be time
to take a step back, review your business and speak to your
Staples Rodway Advisor.

NUMBERS Winter 2017 • 17

LISTED
PROPERTY
TRUSTS
Listed Property Trusts and
Syndicated Property are a common
feature of New Zealand's propertydominated investment market. In
this article James Scarr of Staples
Rodway Asset Management
steps through the key differences
between the two investments.

A Listed Property Trust is a unitised portfolio of property assets, listed on a stock
exchange. A listed property trust (LPT) usually invests in multiple buildings, has multiple
tenants and generally owns a portfolio of large properties, which, due to their size and
value, cannot be bought by the average private investor. These large investments are
broken up into units of smaller value that can be purchased by private investors, who
become shareholders. The minimum economic purchase amount is about $5,000.

Returns are linked to movements in the value of the properties and income generated
by the property management companies. They potentially earn more than fixed
interest and cash over the long term, but less than shares. Value tends to fluctuate
more than fixed interest and cash but not shares, over time.

This article does not seek to recommend one
form of property investment over another, it is
simply written to inform. Before you invest in any
property or fund we recommend:
1.
You take advice from an experienced
Authorised Financial Adviser (AFA).
2. Understand your goals, objectives and do a
risk profile.
3. Consider not just property but a fully diversified portfolio.
4. Think about having it managed for you.
Staples Rodway Asset Management is a boutique investment advisory service, which deploys
client capital in both passive and active strategies
consistent with client objectives and risk profile.
When adopting active investment management
strategies Staples Rodway Asset Management
seeks to identify managers that meet the criteria
above. For further information on the services provided by Staples Rodway Asset Management, an
Authorised Financial Adviser can be contacted on
0508 220 022 or enquiries@sraminvest.co.nz
18 â&#x20AC;˘ NUMBERS Winter 2017

You can sell out and get your money in 4 or 5 days for a brokerage rate of 0.75% to
1.5%. As with Property Syndicates you could end up selling for less than you paid
however, provided you are properly diversified and hold for a reasonable time frame,
that would be unusual.

With listed property trusts you generally get the benefits of diversification - lots of
properties and diversified geographically. It is also fair to say that the quality of the
buildings and the tenants of listed property is almost always of much higher quality
than syndicates and, all things being equal, this means it is lower risk. One of the main
benefits of listed property is that it can offer investors a good degree of diversification.

The average gearing of listed property trusts is between 25% and 35%.

To buy a listed property trust on the stockmarket there is an average cost of 0.75% to
1.5% in brokerage.

SYNDICATED
PROPERTY
Property Syndicates enable you to invest in commercial, residential and industrial
property by pooling your money with other investors. They typically offer higher
returns but can be riskier than other forms of property investment. It’s also important
to note that high returns aren’t guaranteed and your money will usually be locked in.
The number of units available depends on the price paid for the property and you can
buy more than one unit. The unit cost will vary but is typically about $50,000.

RETURNS

RISK &
LIQUIDITY

DIVERSIFICATION

GEARING

ENTRY COST

www.staplesrodway.co.nz

Based on the property’s rental income, minus the costs the syndicate has to pay. One
of these costs will be for a property manager to take care of the management and
maintenance of the property. As a part-owner of the property, you share responsibility
for its costs and debts. These are divided by the number of units in the syndicate, and
investors pay their share based on how many units they own. Investors in property
syndicates pay fees to cover specialist services such as property management, legal and
financial services. This can result in high fees that may increase even further over time.
If there isn’t enough money in the syndicate pool to meet these obligations, you
may need to invest more money and in some cases you’ll need to make this payment
quite quickly. Your investment returns are not guaranteed and can vary. You should
be aware that the return you receive on your investment may be different to the rate
advertised by the property syndicate. Reasons for this include:
� tenants move out of the property and there is a delay finding new ones
� tenants can’t afford to pay their rent and outgoings
� the property manager or others involved in the syndicate increase their fees
� interest rates change and this affects the syndicate's mortgage payments
� the property needs repairs or maintenance work

Unlike a bank term deposit where you can get your money back at the end of a set time
period, property syndicates don’t usually have a fixed term. This can make it difficult
to get your initial investment back if you need it, as there is no active market available
for on-selling your investment when you want to exit. Syndicate managers don’t have
to return your money if you need it, but they might help you sell your unit(s) to another
investor. If you do this, you may have to pay fees. You may also have to sell them for less
than you paid, especially if returns have dropped since you first invested. Otherwise you’ll
need to wait until the property is sold, any loans repaid and the syndicate is wound up.

With syndicates you normally buy one property with a few tenants in one town in one
sector and diversification may be rather limited.

The all-up fees for initial offerings of syndicated properties can be up to 10%.

NUMBERS Winter 2017 • 19

BUSINESS GROWTH
& GETTING THE
BASICS RIGHT
From a telecommunications business that started from humble beginnings, to
one that was ranked amongst the best in this country for customer satisfaction
in 2016, NOW CEO Hamish White says the company’s success comes down
to “a customer-led business model and getting the basics right”.

N

OW IS A HAWKE’S BAY-BASED phone and broadband
“I saw the opportunity to add real value in this space, and it
provider that has really made its mark in the last five years.
has been a constant focus ever since,” he says.
The company services 12,000 customers and employs just over
Hamish describes the last five years as a roller-coaster of
70 staff, with offices in Hawke’s Bay, Rotorua and Wellington.
highs, lows, growing pains and learning what not to do, rather
“For us, it has been about getting the basics right and prothan what to do. While there was an existing business when he
viding good old fashioned customer service. Small things
took over as CEO, he says it was stressed on every front with a
like answering the phone within 60 seconds, and speaking to
poorly structured balance sheet and technical and operational
someone in New Zealand, goes a long way,” says Hamish.
debt. The company was re-branded to NOW in April 2012 and
NOW’s unique service-centric business model boasts its
has been growing steadily, starting from 600 customers, ever
own field technicians and an in-home techspert service, which
since. Hamish recapitalised the business at the time of takeover
is part of what sets this company apart from its competitors
and formed a board that he also chaired for the first four years.
- NOW is New Zealand’s only telco that will come to your
Growth has always been beyond what the company could
home (for a small fee, which customers are happy to pay, says
self-fund so a significant part of Hamish’s role has been dediHamish). This, coupled with unrivaled accessibility and responcated to raising private equity and debt.
siveness to customers’ phone and broadband requirements, is
NOW in-sourced its accounting function three years ago,
a unique proposition the big players can’t compete with.
and at the same time appointed Staples Rodway as its external
From day one Hamish felt the opportunity to add value and
auditor. This was a necessary business decision to strengthen
carve out a real point of difference in the industry started with
the company’s credibility with banks and for external capital
its service and support going beyond customers’ routers/
raising. Hamish says the auditing process also brings with it tremodems. That is the traditional demarmendous business value and he believes
cation point for telco’s, who typically tell
NOW is a better company for doing this.
customers to speak to an IT company,
In an interesting twist, NZX listed and
“or someone who cares,” Hamish cheekily
New Zealand’s largest telco, Spark, took
points out.
a minority stake in NOW 18 months ago.
“We believe customers deserve more
Hamish says that Spark has no operational
than that. At NOW we continue to base our
involvement with NOW and is a very supmodel on our customers. The pace of innoportive shareholder.
vation as it relates to Wi-Fi, IT, home enter“Spark’s shareholding has also brought
tainment, security, surveillance, and home
wider strategic benefits for our business,
automation is only exacerbating customas it relates to procurement clout for
ers’ frustration with the growing complexexample. Spark is very much invested in
ity of a typical home’s digital capability.”
who we are, our people and our culture.”
Hamish says because of that, NOW is
Asked how NOW plans to continue
driving to become the opposite of NZ’s consuch success, Hamish says it comes down
ventional telco, and sees its future as a DSP
to the team - who are driven by a core
NOW CEO, Hamish White
(Digital Services Provider) and no longer
purpose and vision.
just an ISP (Internet Service Provider).
“At NOW, our purpose unites us.
“We are aspiring to help customers digWe believe in pushing the boundaries
itally enable their homes – it’s a bonus that
because customers deserve more. Our
we just happen to offer one of New Zealand’s most reliable
vision gives us direction. We will bring the possibilities of your
and high performing internet services,” Hamish says.
digital world to life.”
NOW has also been very successful in the business market,
He says because the digital world is changing so fast it can
with a commanding presence in the professional services
be tough for the team to stay on track.
sector. Most recently the company has partnered with inter“As a result, we know we need to adapt quickly, be agile,
national giant Mitel, to bring business customers cloud hosted
and keep it energetic and fun.
PBX, Unified Communication and Video Conferencing services.
“With growth, culture gets challenged every day and I take
Hamish says the company’s market share with accountants, real
personal responsibility for being the guardian of this because
estate agencies, law firms and medical practices is dominant.
that is ultimately what sets us apart.”
Achieving significant growth across multiple markets has
In asking Hamish how he has led his team to success, he
been a focused drive since 2011 when Hamish became CEO
says two key words are at the cornerstone of his leadership and a shareholder of the company. The company was originally
empowerment and accountability.
founded in 2002 by Hawke's Bay local Sam Deller, as a rural
“I ask ‘why’, not ‘how’. Because the moment you do that you
wireless internet provider, and Hamish became CEO at a time
disempower your team, stifle their innovation and fresh perwhen the industry was going through substantial structural and
spective, and absolve accountability.
regulatory transformation. The government also announced the
“The team at NOW deeply believes in what we are trying
nationwide roll-out of next generation fibre technology, which
to do, and that is because they are always looking for the
represented a natural ‘switching’ wave the company could ride
answer to ‘why’.
as businesses and homes migrated to fibre.
“And the answer always comes back to our customers.”
www.staplesrodway.co.nz

NUMBERS Winter 2017 • 21

ASK AN EXPERT
In our regular feature we answer readers' questions on any area in the world of
finance, accounting, audit, tax, and other business-related areas. This issueâ&#x20AC;&#x2122;s
question is about changes to tax payments for independent contractors.
Take advantage of our expertise and send your question to questions@staplesrodway.com
and one of our specialists may answer it in a forthcoming issue of NUMBERS.

100

RESERV

NEW ZEE BANK OF
ALAND

100

100

RESERVE BANK

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My company makes use of independent contractors in New Zealand and
we have recently heard about changes to tax payments when we pay them.
What do I need to know in order to stay on the right side of the law?
Answer from Andrew Dickeson, Tax Director, Staples Rodway Auckland

T

HERE ARE FOUR KEY CHANGES to the tax treatment of
payments made to independent contractors.

CONTRACTOR VOLUNTARILY SETTING RATE
From 1 April 2017, a contractor may request to set the rate of
tax withheld on contract payments (minimum 10% for resident contractors; 15% for non-residents). If a contractor does
not request a rate, then the default rates (which can be found
on Inland Revenue’s IR330C form) continue to apply.
Contractors that wish to set their rate of withholding must
be provided by your company with an IR330C Form. (Note: a
change in withholding rate can only be requested twice per
year. Consent from your company would be required for any
further adjustments).
Contractors who seek a withholding rate that is less than
the minimum must apply to Inland Revenue for a special rate
using a IR23BS form.
From 1 April 2017, the IR330C will need to be provided to
new contractors instead of the previous IR330.

LABOUR HIRE ARRANGEMENTS
Contractors that work under a labour hire arrangement (and
are not an employee working for salary and wages) are now
subject to withholding at a default rate of 20%. Additionally,
should they require a lower rate of tax to be withheld, they
are unable to apply for a certificate of exemption and must
instead apply for a 0% special tax rate.

www.staplesrodway.co.nz

?

This particular regime is aimed at payments made by a labour
hire company to a worker (an independent contractor) on its
books. If your company makes payment to a labour hire business, then you do not need to withhold any tax.

VOLUNTARY WITHHOLDING AGREEMENT
Contractors who receive payments from your company that
are not currently subject to any withholding requirements
may now request that your company withhold amounts from
these payments (subject to agreement between parties). This
agreement would need to be in the form of an email, letter,
memorandum or formal contract. The standard rate for these
agreements is 20%.
This type of arrangement only applies where there is
mutual consent between the parties.

PRESCRIBED RATE (ADDITIONAL WITHHOLDING)
Where a contractor has not complied with obligations under
an Inland Revenue Act, the Commissioner may prescribe an
additional rate of withholding (maximum of 50%) to ensure
compliance with outstanding tax obligations. In this situation,
it is likely that a contractor’s exemption certificate would be
revoked, and Inland Revenue would provide notice. One of the
requirements for an exemption certificate is a good record of
filing returns and making payments.
NOTE: The above is general advice only and should not be relied upon as specific circumstances can vary. Please contact your Staples Rodway advisor for
specific advice.

NUMBERS Winter 2017 • 23

ARE YOU READY
TO CHANGE HOW
YOU ACCOUNT FOR
REVENUE?
Article by Aniela Tkacz
NATIONAL TECHNICAL MANAGER
aniela.tkacz@staplesrodway.com

NZ IFRS 15 Revenue from Contracts with Customers is the new accounting standard that will
replace existing revenue standards and pronouncements in providing guidance on how to
account for revenue. The new standard is effective for annual periods from 1 January 2018
and at a minimum one comparative (1 January 2017) period would need to be presented.

W

HERE NZ IAS 18 GAVE you flexibility to do so, some
companies mirrored the timing of their expenses with
revenue recognition. If, “cash is king”, surely revenue is the
queen. I have something to tell you – there’s been a royal
divorce - forget about the timing of your receipts and how
this relates to revenue recognition. The devil is in the detail
with NZ IFRS 15.
The focus of NZ IFRS 15 is very much on the agreed performance obligations in a contract - “what does the customer
expect to receive” and how we satisfy those performance
obligations. Whether cash is received upfront, in a pattern that
reflects the supplier’s costs of production, or monthly throughout a contract does not impact how we recognise revenue.
To illustrate the complexities of NZ IFRS 15, in this article
we will work through key considerations for steps 1-3 of the
five step framework, using a retailer as an example. Keep in
mind, the changes resulting from NZ IFRS 15 are more than
financial reporting related. The standard is likely to impact:
 Changes to reported KPIs;
 Potential breach of banking covenants;
 Tax implications;
 Systems impacts
 Impact on compensation and bonus plans where targets
are driven from revenue KPIs

NZ IFRS 15 FIVE STEP FRAMEWORK
STEP 1: Identify the contract with a customer
This step appears simple but in reality is likely to be otherwise.
 A contract may be written, implied or oral.
 Contracts entered into either at or near the same time, with
the same customer with the same commercial objective
may be required to be accounted for as one single contract
and, when identifying separate performance obligations,
the pool of contracts will need to be assessed.
 A contract must be approved by the parties to the contract with identified payment terms, have commercial substance and be probable that the entity is able to collect the
consideration for which it is entitled.
www.staplesrodway.co.nz

When is a contract not a contract? – when NZ IFRS 15
applies. This is a key step not to overlook.
STEP 2: Identify the performance obligations in a contract.
At the inception of a contract, the entity should identify the
distinct performance obligations set out within it. This is not
reassessed unless a contract is subsequently modified. Hence
it is important to get this right the first time. Performance obligations may be explicit in a contract or implied through customary business practice.

A good or service is distinct if both of the following
criteria are met:
� The customer can benefit from the good or
services on its own or in conjunction with other
readily available resources; and
� The entity’s promise to transfer the good or service
to the customer is separately identifiable from
other promises in the contract.

Possible impacts for those in the retail industry:

The standard distinguishes between warranties that
provide assurance that a product will comply with basic
quality requirements; and warranties that provide an additional service. The former continues to be treated as a cost
provision, the latter will be treated as a separate service or
‘performance obligation’ and the consideration provided in
a contract will be allocated between the product and the
service warranty. In the retail industry it is common to have
a combination of both types of warranties. This may require
some judgement to allocate the transaction price and may
result in a different accounting treatment than at present.
 Shipping of goods. Some entities receive payment when
goods are shipped, however, it is generally understood
that if there was damage to the goods in transit to the customer, the entity would rectify any damages. Judgement
NUMBERS Winter 2017 • 25

THE OPPORTUNITIES
�
Any planned systems changes or improvement
could incorporate changes for NZ IFRS 15, NZ
IFRS 9 and NZ IFRS 16.
�
Greater visibility of the company's operations
where performance obligations are disaggregated
and more transparent.
�
Contracts may be renegotiated to achieve
particular accounting outcomes and safeguard
competitive advantage.

should be applied in considering whether to recognise a
separate element of the transaction price that relates to
the safe delivery of products that have been ordered.
 Royalties paid to franchisors for the licence of intellectual
property. NZ IFRS 15 includes a specific restriction from recognising the associated revenue from usage based royalties
until the usage or onward sale has eventuated, even if past
precedent is an accurate estimate of the royalty to be paid.
STEP 3: Determine the transaction price
The transaction price is the amount to which an entity expects
to be entitled in exchange for the transfer of goods and services. Be aware of customary business practises an entity
offers that may not be contractual but expected by customers,
for example ongoing project management or a return liability
outside of the warranty period. The transaction price needs to
be allocated to these additional goods and services.
Variable consideration should only be recognised if it is
highly probable that a significant future reversal will not result
when the certainty is re-estimated.

Variable consideration can arise, for example, as a
result of discounts, rebates, refunds, credits, price
concessions, incentives, performance bonuses,
penalties or other similar items.

 A
ccounting for volume rebates. Deciding how rebates
should be treated in accounts required discretion and NZ
IAS 18 lacked any prescriptive guidance. In 2014, Tesco
famously revealed it had overstated its profit forecast for
the first half of the year by £250 million, and this disclosure
wiped £2 billion off its stock market value. Suppliers may
make payments to retailers to have their products displayed more prominently or for targeted advertising. The
standard explicitly addresses how to account for payments
made to a customer. Judgement needs to be applied in
considering whether the payment is made for a separate
good or service or should be a deduction from revenue.
 Accounting for non-refundable upfront payments (i.e.
gift cards, gift certificates, coffee concession cards). In
many cases, not all customers exercise their rights under
26 • NUMBERS Winter 2017

these schemes - known as ‘breakage’. Previously there
was limited guidance on customer loyalty programmes
with significant diversity in practice. Under NZ IFRS 15, if
an entity expects to benefit from breakage, the expected
breakage amount should be recognised as revenue in proportion to the pattern of rights exercised by the customer.
i.e. compare what has been delivered to what the entity still
needs to deliver overall. Alternatively, revenue should be
recognised when the likelihood of the customer exercising
those rights is remote.
 Accounting for laybys and any significant financing components. If a component of a contract involves financing
which may be significant, it should be accounted for as a
separate performance obligation and the consideration
apportioned over the multiple obligations.

CURRENT ACCOUNTING IMPLICATIONS
“Management are currently assessing the impact of transitioning to NZ IFRS 15”
Sound familiar? As we step closer to the transition year, regulatory bodies have indicated their expectation that such statements are replaced with qualitative and quantitative disclosures.
Directors and auditors should ensure that notes to the financial
statements disclose the impact on future financial position
and results of new requirements for recognising revenue,
for valuing financial instruments, and accounting for leases.
It is reasonable for the market to expect that quantitative
information will be available and disclosed for the reporting
date that coincides with the start of the first comparative period
that will be affected in a future financial report.”
ASIC MEDIA RELEASE 2016

The FMA have emphasised this message recently,
acknowledging that those charged with governance should
have this on the agenda and be considering more extensive
disclosures in the year end accounts.
We would expect to see at a minimum a summary of the
key focus areas of the transition review in the 31 March and 30
June 2017 financial statements for tier 1 entities.
Ready to dig a bit deeper about the new standard and its potential impact on your firm? Contact Aniela Tkacz (Aniela.tkacz@
staplesrodway.com) for more information.

D

PLANNING
A HOT TOPIC WHEN
SETTING UP A ROBUST
IT INFRASTRUCTURE

Following the completion of a major client
project, I was asked to put together a case
study, not only to show how happy our
client was with the result of a brand new IT
infrastructure that was built within budget
and time frame, but also to help guide
other organisations to achieve the same. It’s
always nice to hear from a happy customer
especially when the project didn’t start off
as smoothly as they would have liked…
Article by Rebecca Maxim
STAPLES RODWAY TARANAKI
rebecca.maxim@staplestaranaki.co.nz

RIVING TOWARDS THE NEW PURPOSE-BUILT premises of Pioneer Manufacturing Ltd in Waiwhakaiho,
New Plymouth, I was starting to get a sense of the extent
of their requirements for the build. The beautifully tarmacked car park with oversized parking spaces gave way
to a perfectly positioned entrance surrounded by blacked
out windows. A perfect place to work on important heating
solution projects.
Having completed the building and the move, Pioneer’s
Finance and Administration Manager, Tracey O’Doherty,
contacted Staples Rodway’s IT team to ask for a little help.
“We didn’t initially make contact with Staples Rodway as
we believed the IT company we were dealing with could
take charge of the whole project. As it turned out, their expertise really lay in infrastructure - wiring the building and telecommunications. Creating a top quality IT environment was
our next goal. After several delays and with the Christmas
deadline fast approaching, we still didn’t have our new
server installed. Having worked at Staples Rodway in the
past I knew they would be efficient, thorough and extremely
knowledgeable, so I contacted them immediately.”
Having previously been located in Inglewood, the family-run business has been around for over 20 years, and is
well known in the industry for manufacturing and supplying Metro Fires nationwide. The Metro Fires network comprises of over 300 agency partners made up of heating
specialists, hardware stores, plumbers, installers and
chimney sweeps.
The new state-of-the-art building is now the hub of the
wood fire manufacturing company and houses the Metro
Fires National Office, Research & Development Centre and
is the Distribution centre for Metro Fires’ nationwide network.
Staples Rodway IT Director, Rob McEwan said: “Pioneer
had brought their existing systems up from Inglewood,
however those systems were slow, insecure, impeded productivity and were a constant frustration to the team. Much
of the IT landscape had changed, so we spent time educating them on what was now possible. We worked with
Tracey to define the roadmap for their IT journey, gained
their approval and started planning.”
Pioneer still wanted to implement over Christmas. So
Rob and the team agreed a go-live date early in January
to match the return to work from the holiday season.
Preparatory work was all done before Christmas so the
change-over could happen while the office was closed for
the holidays and testing occurred in early January so any
issues were sorted before the staff returned.
Tracey said: “I was really impressed, even from the initial
meeting, they addressed my concerns and provided the
best solutions to any queries I had. Expecting a few teething issues on the first day back after the Christmas break, a
lot of stress was taken away by their team being on site to
respond immediately. To this day, Staples Rodway are on
hand when we need them and even supply sound advice
on areas outside of their expertise. I know that no matter
what the problem, Staples Rodway have the solution and I
look forward to a long and trusted relationship with them.”
NUMBERS Winter 2017 • 27

I am greatly saddened. John’s wise
and practical counsel will be missed
by many, many people.
ARTHUR LOO

Like a number of our senior “Statesmen” he led by example and leaves
an impressive if not somewhat daunting legacy for us to keep alive.
DAVID CARTER, BECA EXECUTIVE CHAIRMAN

It is with great sadness and respect that our Auckland office mourns the recent passing of its Chairman.

W

HILST THE NAME STAPLES RODWAY provides an
ongoing acknowledgement to the very solid foundations of the Chartered Accounting practice put in place
by Charles Staples and Frank Rodway, it is probably fair to
say that, throughout the firm’s history, there has never been
a more industrious “builder” of its fabric and structure than
John Wadams.
John’s exceptional energy, hard work and rare talent when
it came to providing innovative client solutions and exceptional client service, have been major contributors toward him
growing such a large and loyal client base.
As our firm has become larger and it is more than just one
man or woman, however, the character and feel of the practice
has certainly taken its lead from John – in the people he chose
to become his business partners and the team members that
he mentored and encouraged over the 47 years that he has
28 • NUMBERS Winter 2017

I met John in 1996, a man confident in his environment in
the boardroom and at the time immersed in a cloud of
smoke having a coffee. John shared many experiences, I
worked on a few clients with him and he looked out for me.
John took no crap but he always had time for the people.
PHIL PAVIS

devoted to Staples Rodway. When writing his memoirs “How
it all began”, Frank Rodway referred to “the John Wadams era”
to describe John's influence over the practice and credits him
with transforming the firm from a partnership of “old taxonians”

(individuals who had come directly from the Inland Revenue
Department) by creating “a multi-faceted team which has
attained for the firm the high standing it enjoys with its clients
and the community”.

As one of the original directors and the initial chairman of
Staples Rodway Asset Management (SRAM) John was a
strong advocate and instrumental in the growth of SRAM.
His influence and support will be greatly missed.
MICHELLE FORSTER

John was a person who always had time to listen to others
and impart valuable knowledge acquired during the
course of his successful career. An irreplaceable individual
who will be missed by us all.
ANDREW DICKESON

Many team members that benefitted from John’s wisdom
and guidance over those 47 years have moved on to pursue
related or alternative careers within public practice, commerce
or as entrepreneurs. Others have taken on the challenge of
raising and caring for a family – a skill set which John was also
well qualified to offer advice on, notwithstanding the incredible
efforts of his wife of 50 years, Barbara. Barbara’s role as stay at
home mum and primary care giver allowed John to devote so
much time to his work. It is a mark of the man that John was,
that many of those people continued to keep in touch with John
to avail of his no-nonsense and thought provoking counsel.
As any good professional practitioner will tell you, success
can be measured by the growth in one’s client base; as it
will not take long to lose clients if you render bad advice or
become disinterested in your clients’ affairs. Conversely, happy
clients are the best form of marketing, and there is no better
compliment than the trust shown by a client to put their own
reputation on the line through a recommendation or referral.
By this measure, John’s effectiveness as an adviser is apparent
from the many clients of the Auckland practice who share a
“connection” in one way or another.

Many senior leaders at Beca have worked closely with
John over a long period of time and his sage advice will
be widely missed. The relationship forged between our
organisations has long been based on mutual respect and
understanding and I know that John was a big part of that.
GREG LOWE, BECA GROUP CHIEF EXECUTIVE

An illustration of John’s value to the business community
can be seen from the number of directorships and trusteeships that John held. In John's role as a professional trustee for
many family-owned enterprises, he demonstrated an ability
to bridge the inter-generational gap which, in some cases, has
extended over four generations.
As well as his service to clients, John’s contribution to the
community was recognised by his investiture as a Knight
www.staplesrodway.co.nz

of the Order of St John; and his service to the accounting
profession by being made a Fellow of the NZ Institute of
Chartered Accountants.

I had the pleasure of attending the ICANZ dinner for John’s
admission as a Fellow. In John’s acceptance speech he
said “it is important to give back to society” and I feel he
embodied this throughout his life.
ANNETTE AZUMA

For my own part, as a 17 year old “kid” who came to Staples
Rodway over 35 years ago, having only one year of full-time
study toward my accounting qualification under my belt, John
has fulfilled many roles. He was the encouragement that
steered me toward my early interest in tax; he was the person
that became my greatest mentor after my earliest years as an
understudy to Frank Rodway; and he was the person that gave
me my biggest opportunities to show the partners and some
very valued clients of Staples Rodway, that I was capable of
embracing the firm’s culture and commitment to client service
that John epitomised so well, thus enabling me to become a
very real part of the Staples Rodway history. For all those things
and the many other pieces of worldly wisdom and fatherly
advice that John bestowed on me, I will be eternally grateful.
With John’s passing, although it can truly be said to be “the
end of an era” at Staples Rodway, it is incumbent on us, the
people that John chose to carry on his legacy, to honour his
memory with the same standard of service and insight that
was “John’s way”.
Whilst the task is somewhat daunting, if when I leave the
firm, under whatever circumstances that may be, I can claim
to have even come close to the achievements of my mentor
and my friend, I will consider it a triumph.

John may have left the office, but his spirit and legacy will
remain here forever.
SHEREE OMUNDSEN

NUMBERS Winter 2017 • 29

&

MOVERS

SHAKERS

STAPLES RODWAY
PROMOTIONS
It has been a busy quarter, with a number
of promotions across the country.
Please join us in congratulating our
people on their recent advancements.
AUCKLAND
Kathryn Price to Associate Director
Jared Booth to Associate Director
TAURANGA
Sybrand van Schalkwyk to Associate
Keryn Jarvis to Senior Manager
Michelle Dyer to Senior Manager

TARANAKI MANAGER WINS CRAIG
NORGATE MEMORIAL SCHOLARSHIP
Staples Rodway Taranaki BAS Manager and Bookkeeping
Coordinator, Kylie Filbee-Cronin (above) was one of two
recipients in New Zealand to receive the inaugural Craig
Norgate Memorial Scholarships which honour an inspirational
business leader and support two young Kiwis continuing
on their Chartered Accountant careers. The scholarship was
given to Kylie because of her leadership ability and strong
commitment to her community, which includes her role as
Treasurer of The Network Taranaki Incorporated, a not-forprofit organisation supporting women in business in Taranaki.

STAPLES RODWAY AUCKLAND BOOSTS SENIOR RANKS
Staples Rodway Auckland has recently appointed Bill Apps as a Director.
Bill Apps has more than 20 years’ experience as a corporate finance specialist,
including time working both in New Zealand and internationally on a wide range
of engagements including telecommunications, primary and construction
sectors. He regularly appears as an expert financial witness before the courts and
is called upon for his specialist expertise in valuations, due diligence, mergers
and acquisitions, economic loss and financial modelling. Bill has considerable
technical experience including valuation engagements arising from NZ IFRS
requirements and has completed a number of reports under the Takeovers Code.
Managing Director David Searle says: “Bill is a valuable asset to our team, with
a depth of knowledge in corporate finance and someone our clients regularly
look to for advice they know they can trust and rely upon. We’re thrilled to have
someone of Bill’s calibre and reputation serve as a director within the business.”
Bill’s appointment furthers Auckland’s wide range of specialisations
and adds a new service in the form of Litigation Support, while
further strengthening their Due Diligence, Valuations, Mergers
and Acquisitions, and Financial Modelling service lines.
30 • NUMBERS Winter 2017

STAPLES RODWAY

SNAPSH T
At Staples Rodway, it's our people that set us
apart. Take a look at what our team has been
doing in their communities, in their professions
and following their dreams.

STAPLES RODWAY
WOMEN INFLUENCING WOMEN
PINK RIBBON BREAKFAST
Staples Rodway Hawkes Bay has been hosting
Women Influencing Women events over the past
two years to help support female clients in business.
To kick-start and reinvigorate these events for 2017,
we decided to host a Pink Ribbon Breakfast and
support The New Zealand Breast Cancer Foundation.
This event supported some of our firm’s core values
of: supporting the community; people are important;
having fun; and going the extra mile. Our team
provided all of the lovely pink baking, which enabled
all of the funds raised to go to The New Zealand
Breast Cancer Foundation and fund research
projects to improve the survivorship of breast cancer.
We had over 60 business and professional women
attend our breakfast on 17th May. We have raised
over $1,700 so far and are very proud to be part
of a fantastic and supportive community and
help raise funds for a very important cause.
If you are interested in attending future Women
Influencing Women events, please contact Michelle
Valler mvaller@stapleshb.co.nz or 06 878 7004
Pictured left: Jacqui Gray from Gifford Devine
& Shelley Signal from O.So.U.

LISA KING
– WOMEN IN BUSINESS
Staples Rodway Auckland’s Women in Business
group hosted Lisa King in May, where she
shared her success story. Staples Rodway’s
hosting of the event enabled 100 lunches to be
bought for kids in need.
If you are interested in subscription lunches or
their newly added one-off catering options in
Auckland, Hamilton or Wellington, you can visit
eatmylunch.co.nz. Lunches start at $12 and for
every lunch you buy, they give a lunch to a Kiwi
kid in need.
Lisa King pictured with Jessica Stewart, Anna
McCrory, Emma Dymond, Velvet Ly, Nicola
Hoogenboom, Annette J. Azuma, Sachiko Konno,
Robyn O'Brien, Allison Ranby, Kris McAinsh,
Jo-Anne Randall, Ayumi Sugimoto & Natalie Owen.

www.staplesrodway.co.nz

NUMBERS Winter 2017 • 31

PHIL BANKS MEMORIAL PRIZE
Congratulations to Jack Elliot & Tiann Nelson who were
recipients of the Phil Banks Memorial Prize in Tax Law,
established by Staples Rodway in Phil’s memory in 2016.
Unfortunately Jack was not available for pictures, but
Tiann was a lovely guy and very appreciative of the
award. Tiann received several awards during the evening
so he seemed very much like a superstar on the rise!
A very nice evening and a touching tribute to Phil,
particularly when Andrew Stockley presented the award
and acknowledged Sandi, Laura, Graham, Fiona, Steve
and Trish and the contribution that Phil had made to tax
law and to us at Staples Rodway.

THE (DARK) ART OF SUCCESSION PLANNING
Staples Rodway and ANZ Bank recently hosted a
well-attended succession planning client event. The
star performers at the event were panelists Richard
Aitken (ONZM) until recently Executive Chairman of
New Zealand's largest employee-owned professional
services consultancy Beca Group, Malcolm Rands
(MNZM) the visionary co-founder and CEO of ecostore
and Executive Chair of Fairground Foundation, Wendell
Phillips director and co-owner (until a recent sale)
of large state-of-the-art manufacturer Sistema and
Catherine Atchison (Partner Trusts and Estates) from
Martelli McKegg.
Richard Aitken focused on the topic of succession
planning for senior executives in the corporate
environment while Wendell Phillips and his daughter
Bailey (contributing from the audience) considered
succession planning from the perspective of the third
and fourth generations involved in a family business.
Richard, Wendell and Bailey commented on just how
important parents are in creating a home environment

where business awareness is nurtured and business
issues are discussed.
Malcolm Rands spoke of a life-long passion for fundraising for charity. He created ecostore to fund his
charitable work. Malcolm’s palpable passion for the
environment and society has resulted in two event
attendees talking with Malcolm and his charity
Fairground Foundation (www.fairground.org).
Catherine Atchison spoke in arresting terms about the
financial and emotional impact on families that occurs
when family business owners do not make adequate
financial provision for death or incapacity.
Conversations about succession planning are never easy.
Whether you are contemplating the sale of a business
nurtured from an idea; wondering how your legacy will
live on in the hands of the next generation; or if you
are looking to find the right person to hand the reins
of power to. If it is time to take action on succession
planning, call your Staples Rodway advisor.

MEETING THE PM
Staples Rodway Auckland Tax Director and current
NZ President of CPA, Andrew Dickeson (pictured
far right) had lunch recently with Prime Minister,
The Rt Hon Bill English. Andrew found a kindred
spirit in the Prime Minister who impressed with his
encyclopedic knowledge of tax legislation and
his understanding of complex tax concepts.
Annette Azuma recently attended the 2017 ISPS
Handa New Zealand Open held in Queenstown.
NZTE hosted a VIP breakfast with the Prime
Minister, as guest speaker (pictured with Annette
below). The Japanese presence was huge – held
at Millbrook Resort owned by the Ishii Family; main
sponsor ISPS Handa, other Japanese sponsors
included Oji, Sumitomo Forestry, Nelson Pine
Industries, Asahi and JTB.

TRACY HICKMAN COMPLETES
MARATHON GOAL
Auckland Corporate Advisory Services Director
Tracy Hickman recently returned from Antarctica
and can now claim to boast to having run at
least one marathon on all 7 continents!

WORLD
MASTERS
GAMES
A huge congratulations to
Denis Drumm who took
out the gold for the B
Grade 70+ Mixed Doubles
in the Masters Games. Just
when we thought he’d be
using his semi-retirement
to relax and put his feet up!